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Case Study – Architect’s Adjudication

In December, Bradbury Legal acted for a Queensland architecture firm in preparing an adjudication application against a builder for unpaid payment claims and variations claims. The architect was engaged to design an aged care facility in the New South Wales area. The builder sought to withhold over $200,000 from our client’s payment claim, citing back charges, defects, and unapproved variations.

In late October, our client submitted its payment claim for approximately $335,000. After issuing the section 17(2) notice, the builder certified just under $103,000, a difference of over $200,000. The Adjudication Application involved numerous late nights (including an all-nighter by Vinesh, Frankie, and Lachy), reviewing various documents, and drafting submissions and statutory declarations so that the Adjudication Application would be served before the Christmas shutdown period. In the end, the Adjudication Application totaled six folders worth of documents substantiating our client’s right to payment. This was a phenomenal effort by the Bradbury Legal team given the quantity of documents involved, the complexity of the issues, and the strict timeframes under the Security of Payment Act.

The Adjudicator awarded an Adjudication Amount of over $240,000 in favour of our client, representing an incredible result which the client was incredibly thankful for. The Adjudication Amount represented more than double the scheduled amount by the builder, promoting greater cashflow for the architecture firm.

Bradbury Legal is highly experienced in preparing and responding to adjudication applications. If you or anyone you know is struggling to be paid from a head contractor or developer or you have received an adjudication application, please contact Bradbury Legal.

Attention residential builders in NSW – big changes ahead from 1 March 2021 you will be able to use the Building and Construction Industry Security of Payment Act to recover money owed by homeowners

On 1 September 2020, the NSW Government released the Building and Construction Industry Security of Payment Regulation 2020 (2020 Regulation) which radically changes the way residential builders and homeowners resolve disputes in relation to outstanding progress claims after 1 March 2021.

Currently, section 7(5) of the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act) and section 4(1) of the Act provide that the Act does not apply to owner occupier construction contracts, that is, contracts where the homeowners intend to live in the premises.  In these instances, residential builders cannot use the Act to recover outstanding progress claims due from homeowners.

This will all change on 1 March 2021 when the 2020 Regulation commences which will remove owner occupier construction contracts as a prescribed class to which the Act does not apply.

This means come 1 March 2021, residential builders will have a statutory right to payment and be able to serve payment claims on homeowners under the Act and apply for adjudication in relation to any outstanding progress claims.

This is a big game changer for residential builders as it will improve cash flow and mean that residential builders will be able to claim outstanding progress claims from homeowners without having to get involved in expensive and lengthy Tribunal and Court proceedings in order to get paid.

Whilst homeowners will still be entitled to bring a building claim in the Tribunal or Court for defective work and the like, such a claim will not defeat or delay residential builder’s entitlements under the Act.  This means that homeowners will be required to pay any amount awarded pursuant to an Adjudication Determination prior to the determination of any Tribunal or Court proceedings which will (in most cases) reduce in the issues in dispute in any Tribunal or Court proceedings.

What residential builders need to know now

The NSW Government has given residential builders and homeowners a transition period to adjust to these major reforms.  We suggest during this period residential builders should familiarise themselves with the Act and their contracts in relation to:

  • the requirements of valid payment claims including serving supporting statements with all payment claims where builders contract directly with homeowners;
  • the dates from and methods of service of valid payment claims;
  • identification of a valid payment schedules by homeowners;
  • review of your standard contracts to ensure that they comply with the minimum contracting requirements and minimum variation requirements under the Home Building Act 1989 NSW (HBA), as this may effect how an adjudicator assesses amounts payable under the contract so your paperwork has to be in order;
  • review your practices and procedures to ensure that you have the necessary resources to utilise the adjudication process and respond within the strict time frames. The benefit of this is that it will reduce the time and cost (in most cases) of litigation as an Adjudication Determination will usually be received within 21 days of lodging the Adjudication Application; and
  • get legal advice to set yourself up so you can utilise the Act and put yourself in the best position to get paid.

A Downer of a decision: The importance of articulating adjudication submissions

In Diona Pty Ltd v Downer EDI Works Pty Ltd [2020] NSWSC 480 (Diona), the Supreme Court considered an application to set aside an Adjudicator’s Determination for failure to consider the terms of the contract as required by s 22(2)(b) of the Building and Construction Industry Security of Payment Act 1999 (the SOP Act).

Key takeaway:

  • It is important to ensure that adjudication submissions clearly articulate all relevant arguments and contractual provisions. Unclear, poorly framed or ambiguous submissions can be costly.
  • An adjudicator’s decision will not be declared void simply because it contains what one party considers to be an error or failure by the adjudicator to expressly address all arguments made in parties’ submissions.
  • Lawyers can be useful to assist in preparing an adjudication application and response. Having prepared and responded to numerous security of payment claims, the lawyers at Bradbury Legal are experts at ensuring your arguments are clearly articulated.

 

Background

Diona Pty Ltd (Diona) entered into a subcontract with Downer EDI Works Pty Ltd (Downer), for Downer to provide works in relation to safety upgrades on the Great Western Highway, Blackheath. Downer proceeded to adjudication on a payment claim under the SOP Act. On 16 April 2020, the relevant Adjudicator determined that Downer was entitled to a progress payment of $430,990.13 (Determination).

Diona made an application to the Supreme Court, seeking a declaration that the Determination was void and an injunction preventing Downer from requesting an adjudication certificate or filing the adjudication certificate as a judgment debt. Diona contended that the Adjudicator had incorrectly awarded a set off claim by Downer, in response to Diona’s liquidated damages claim, in the amount of $30,000 on account of two extension of time claims (EOT Claims).

Diona argued that the Adjudicator had not fulfilled the requirements of s 22(2)(b) of the SOP Act because the Adjudicator had failed to give any reference to, or consideration of, Diona’s contention in its adjudication response submissions that Downer was not entitled to these extensions of time, due to the operation of a time bar in the contract.

 

Did the Adjudicator consider the time bars?

The central question was whether the Adjudicator considered the provisions of the contract. Under section 22(2)(b) SOP Act, an adjudicator must consider the provisions of the construction contract.

To determine if the Adjudicator did consider the contractual provisions, especially those containing the time bar, the Court looked at the submissions made by both parties and the Adjudicator’s determination.

The Court noted that Downer had ‘devoted a number of pages to its contentions concerning extension of time and, in particular, its asserted entitlement to EOT 18 and EOT 21’. This was contrasted with Diona’s submissions, the Court found did not properly engage with Downer’s EOT Claims. Diona’s submissions stated:

Determinations of claims for…extension of time…by Diona are final and cannot be disturbed except by raising a Claim under the Contract, see relevant clauses of the Subcontract.’

The Court highlighted a part of the Adjudicator’s reasons which stated:

The Act at section 22(2)(b) requires the adjudicator to consider the provisions of the construction contract when making the determination

Having regard to the Adjudicator’s express reference to s 22(2)(b) of the SOP Act, the Court stated that there were several reasons why the Adjudicator did not refer to the dispute clause in the Determination. Firstly, the Adjudicator may have felt that Diona did not properly articulate and develop the time bar argument. Alternatively, the Adjudicator may have misunderstood the submissions. The Court concluded that:

The Adjudicator may have come to the wrong decision about Dower’s entitlement to EOT 18 and EOT 21. But that, without more, is not a basis to set aside the set aside the determination.

The argument that Diona sought to raise, while potentially valid, was not properly articulated. Therefore, it could not be inferred that the Adjudicator had failed to consider the provisions of the subcontract as required by s 22(2)(b) of the SOP Act.

 

So what?

The significance of this case is that it shows that what appear to be errors or failures to consider an argument by an adjudicator will not always result in a basis to set aside the adjudicator’s determination. The adjudicator’s decision can be rough and ready, provided the adjudicator makes their decision in accordance with the SOP Act. Payments made under SOP Act are on account only and may be determined on a final basis at a later stage.